- November 7, 2018
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Buying commercial property for investment has remained a lucrative undertaking for a great amount of time. While the thought of it may seem daunting at first, what with all the extra responsibility that comes with it (property management has its own set of rules), if you can get beyond that you will absolutely see that it is a positive choice for many reasons. Let’s first define what commercial property is and then take a look at what makes it such a great investment.
What is it?
Commercial property refers to any property that is being used for a business purpose. This might include office buildings, warehouses, industrial buildings, retail buildings, apartment buildings or mixed-use spaces that offer a variety of different uses within one structure. Your long-term investment goals, the status of your current commercial real estate market, and your industry knowledge will all help you to determine which commercial property is the best investment for you personally.
Buying commercial property for investment yields a high return on the initial purchase price. It is substantially higher than the return you might find on purchasing residential investment property. You can expect to receive anywhere from a 6-12% return annually on your commercial property, whereas residential properties will have you closer to the 1-4% range. That simple fact alone is enough to showcase what a valuable investment commercial property really is.
While it stands true that there may be some additional upkeep to maintain your commercial investment property, it is also true that your tenant will most likely do their part to make this as easy as possible for you. A commercial tenant’s business is represented by the state of the property they are leasing. They know that their clients are expecting to visit a property that is clean, well-kept, and in proper working order, and that, in failing to have that, their business could be greatly affected. This vested interest in the state of the building encourages commercial tenants to treat the property as if it were their own. In other words, your interests and the interests of your tenants are much more aligned than they might be in the case of a residential property.
Buying commercial property for investment also allows you the benefit of longer leases with more flexible terms. A commercial lease can run anywhere from 3-10 years, while most residential leases are renewed on a yearly basis. Having this longer lease term in place allows you the peace of mind that the space will be occupied for that amount of time, rather than constantly scrambling to find a new tenant. Also, being that there are far less consumer protection laws in place for commercial leases, you are granted the flexibility to alter your lease terms to more practically suit your needs and the needs of your tenants.
Buying commercial property for investment is also a smart move because you are typically not relying solely on one tenant to pay the rent. Most commercial properties have multiple tenants offering you the security of knowing that, should one tenant break their lease, have trouble paying, or choose not to renew, you will still be able to cover the running expenses on the property.
Triple Net Leases
Although there are different types of triple net leases, the general underlying premise is that they are set up so that the property owner does not pay any expenses on the property other than the mortgage. These types of leases are typically only offered to larger companies who can take on the overhead and are intent on keeping the look and feel of the property in alignment with their brand (such as CVS or Starbucks). The obvious perks of these types of leases to the investor are the fact that you will likely have a very long-term tenant and that you will have almost zero maintenance and upkeep on the property.
Limited Hours of Operation
Unlike residential property, commercial property is typically empty once the sun goes down. That means that, when the business closes up for the day, you can too! Barring, of course, unexpected incidents such as fire alarms or break-ins, investing in commercial property is a great way to ensure that you won’t be disturbed in the middle of the night because a tenant forgot the alarm code or misplaced their key.
Are You Ready to Find a Commercial Investment Property in Baton Rouge or the Surrounding Areas?
Now that you have a better understanding of why buying commercial property for investment is such a great idea, it’s time to make you a commercial owner. At SVN | Graham, Langlois, & Legendre, LLC, our team of dedicated Advisors is committed to making the process of purchasing your first investment property a breeze from start to finish. Take a look through some of our available investment opportunities today and contact a team member to start your investment journey!